Inside the World of the Wealthy: No One Knows Who Is Rich

The best asset protection is to have no assets. The thought that wealthy people walk around with millions or billions of dollars in a personal account could not be further from the truth. In fact, many wealthy people on paper make as much as you and I, the difference being that they have billions of dollars at their command.

For a number for the rich and wealthy, holding companies have become their vehicle of chose. A holding company is a business that does not produce any products. Instead, it has owns investments such as stocks, bonds, real estate, and other businesses. The term holding company comes from the fact that the business has one job: to “hold” their investments.

Typically, people with assets in holding companies do so to hide their wealth. In so doing, they downplay their wealth. For many keeping wealth a secret is fundamental to asset protection, and the interesting part is no one close to them knows as well. The children don’t know. The parents don’t know. The friends don’t know. The coworkers don’t know. The extended family doesn’t know. Most prefer to live in nice, ordinary houses and drive nice, ordinary cars. To live the life of a "baller" would attract unwanted attention.

So, in addition to mortifying their behavior they are breaking their wealth down into smaller manageable accounts. One way to protect wealth this way is to create separate entities to hold that wealth. So instead of having a savings account that has $1,000,000 in it, they may have five corporations who have savings accounts with $200,000 each in them. This is important, because the owner of these companies can claim legal tax deductions under the corporation which he spends his money under. For instance, he’s allowed to deduct the half the expense of his meals if it is related to the business. So if he takes his family out to dinner and uses one of the company cards, half the expense of that meal is tax deductible.

The use of trusts is also effective in asset protection. Lastly, this is a technique that should not be utilized only by millionaires and billionaires but also individuals who are building wealth can use some of these techniques to reduce liability now. By the time a person has incorporated all of these techniques they will be wealthy and control millions or billions of dollars but own nothing.